The startups shaping the energy landscape

Innovative technologies will be crucial as the world transitions to a sustainable future, but which technologies will lead the way? A study that identifies innovation trends among electricity startups could help policymakers anticipate upcoming innovation trajectories and cultivate a regulatory environment conducive to innovation, accelerating the shift.

“Innovations that are emerging from startups now will define the landscape of the industry in the next 8-10 years,” says Rolando Fuentes, formerly a senior economist at KAPSARC, and now at Tecnológico de Monterrey in Mexico. 

Analyzing 320 electricity startups across 36 countries in collaboration with KAPSARC researchers, Dongmei Chen and Frank Felder, Fuentes found that a large proportion of startups placed a clear focus on decarbonization. Among decarbonization startups—which accounted for more than 40% of the firms examined in the study—an overwhelming number pursued innovations to photovoltaic (PV) technology to generate power from solar energy. 

Startups were innovating in various areas, including more resilient, lighter, and efficient materials, as well as enhancing installation and maintenance processes. Fuentes believes the abundance of startups working on carbon-reducing technologies reflects a strong alignment with global sustainability goals. 

Innovations in digitization technology were the second most common among electricity startups. Artificial intelligence was a common area of development, with startups using AI technologies to optimize operations and improve efficiency, by balancing the grid, for example. Additionally, many of them were working on data mining, blockchain technologies, and digital platforms that connect electricity sellers and buyers. These will ultimately reshape how electricity is generated, distributed, and consumed globally, Fuentes says. 

“While digitalization is widely recognized as important, the degree to which it can animate markets and reduce barriers to participation may be more pronounced than previously understood, suggesting a transformative potential that could significantly alter industry dynamics,” Fuentes explains.

And while some startups focused on electricity storage, such as improving battery life and charging speed, the innovations were incremental rather than revolutionary. “This contrasts with the expectation that storage solutions would lead to significant breakthroughs in energy management and distribution,” Fuentes says.

The analysis also revealed that startups, most notably in PV technology, were striving to innovate in the confines of existing business models and regulatory frameworks rather than seeking disruptive transformation. This does not align with the typical narrative of startups as agents of radical change, according to Fuentes. 

“The regulatory environment significantly impacts the business models that startups can pursue. Well-designed regulations can enhance innovation, while restrictive regulations may hinder the development of new technologies,” he explains. “By responding strategically to these trends, policymakers and business leaders can drive the transition to a sustainable energy future, fostering economic growth and environmental sustainability.”